Tuesday, August 7, 2007

Fisher & Paykel Appliances: In a Spin over nothing

Given the recent increase in the Kiwi dollar since this article about Fisher & Paykel Appliances [FPA.NZ] was written in May and published elsewhere, I thought I would update it.

In May the scenario was as follows.

So Fisher and Paykel(FPA) are moving their NZ washing division to Thailand and closing down their operation in South Auckland. So what.

It is very sad that semi-skilled workers in a low wage area no longer have work and that a New Zealand company long imbued with a kiwi badge will now be slapped together by a man or woman that may have paddled a boat or cycled to to work. Is it really a surprise or something out of the ordinary? Well, quite frankly no.

While the left of Lenin media and every two-bit polly and union rep have a go with their own wide of the mark opinion, blaming the F & P move on a high dollar and high costs the fact is that F & P have never been competitive but are now being forced to by the market reality of cheap well constructed and better designed appliances coming from the very places that Fishers are now moving to.

There may be incentives layed at the feet of companies like F & P to go to far flung areas where labour is cheaper than a life but it is just a market reality that this kiwi company has finally faced. You cannot compete with huge white ware companies on the small scale that F & P do. You are either a niche player with a product that commands a premium and those days are now over for Fishers or you ramp up production and compete on cost. F & P don't have scale so they will struggle in that market as well.

It is a natural progression in any capitalist nation for a business to want to cut costs at every opportunity. If that means moving the business to another town or across the world to another country then must needs must.

While it is clear that Government has driven up the dollar with wasteful and profligate spending it is also even clearer that govt could do one thing to not only keep current industry here but bring more manufacturing from abroad. No tax breaks from govt lackeys trying to pick winners, no incentives for this and that. Cut corporate tax to 10%.

The Irish have found for the last 10 years that this works. In a similar sad position themselves, as we are now, 1 million kiwis living overseas and the same amount on welfare, the far scattered Irish came back home and the success of their economy is the stuff of legend.

The moaners need to stop moaning. Central and local govt need to butt out of business and that means stealing well needed capital through high taxes and compliance costs must end. Govt is not the answer to the problem here ,it is the reason

It would behove the mass business media to focus on the real story here. The answer is not more welfare, this time for business, the answer is lower costs, regardless of a "high dollar".



Three months on, in August, Fisher and Paykel's share price has dropped further and margins will have been squeezed even more.

The good news for the company though is that the factory in Thailand will be closer to completion and therefore we will see a more competitive base for them to compete with the high volume producers.

Likewise the Kiwi dollar looks to be on a turn and with in conjunction with the cheaper production costs the savings will go straight to the bottom line.

Of course steel and other commodity prices have risen further still but Gary Paykel's shift to Asia means this will have less of a consequence than if they had remained bogged down in South Auckland.

Related Share Investor Reading

Fisher & Paykel: A tale of Two Companies



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Consumer Appliances Industry Report

Consumer Appliances Industry Report
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c Share Investor 2007